1 United States Environmental Protection Agency, Region IX

Air Division

Technical Support Document

for

EPA's Notice of Proposed Rulemaking

for the

California State Implementation Plan

Feather River Air Quality Management District

Rule 10.1 New Source Review



### Laura Yannayon

May 9 , 2011

Reviewed by

Gerardo Rios2 Table of Contents

Section Page

Introduction 1

NSR Program SIP Revision Submittal s 1

Background 4

Rule Summar ies 3

Rule Evaluation 6 General New Source Review (NSR) Requirements

New Source Review Reforms

California Clean Air Act

– New Source Review Program NSR Reform Program Requirements Impacts of Federal NSR Reforms on California NSR Permitting Programs

Section 110(l) of the Act 31

Section 193 of the Act 61

Re commendations 67

Attachment s 743



### Introduction

Part C of title I of the Clean Air Act (CAA or Act) contains the provisions for the Prevention of Significant Deterioration (PSD) of air quality in areas designated as “attainment” or

“unclassifiable” for the national ambient air quality standards (NAAQS). Part D of title I of the Act contains the requirements for areas designated “nonattainment” for any of the NAAQS. Both parts C and D of the Act require pre

- construction permit programs for certain new o r modified stationary sources of pollutants. The requirements under part C, referred to as “PSD New Source Review” (PSD) apply to certain new or modified sources that would be located within attainment areas, and apply to all regulated pollutants, except those pollutants for which an area has been designated as “nonattainment.” The requirements under part D, referred to as “Nonattainment NSR,” (NSR) apply to certain new or modified sources of nonattainment pollutants in nonattainment areas. Collectively, the pre

- construction permit requirements related to PSD and Nonattainment NSR are commonly referred to simply as “NSR.” Both of these programs apply to “major” stationary sources and “major modifications” as those terms are defined in 40 CFR Part
51, Sub part I. In addition to the regulation of major stationary sources, states are also required to adopt a program to provide for the regulation of the construction and modification of minor stationary sources and minor modifications at major sources, to assu re that the NAAQS are achieved and/or maintained. These pre

- construction requirements are commonly referred to as

“minor NSR.” (See 40 CFR 51.160

- 164)



### NSR Program SIP Revision Submittal s

Rule 10.1

–

New Source Review (NSR) was first adopted by the Feather River Air Quality Management ( FR A QM D or District) on February 8, 1993 and submitted to EPA via the California Air Resources Board (ARB) by a letter dated March 23, 1993. EPA has not taken action on this submittal. Revisions to Rule 10.1 were adop ted on October 5, 2009 and subm itted to EPA via the ARB by a letter dated July 20, 2010. ARB is the governor’s designee for submitting official revisions of the California State Implementation Plan (SIP) to EPA. There is not a current version

of th is spe cific rule in the SIP

.



### Background

In 2002, EPA promulgated changes to the NSR regulations for preparation, adoption, submittal and approval of implementation plans governing the NSR programs mandated by parts C and D of

title I of the Act. These changes to the major NSR program, commonly referred to as “NSR Reform,” obligate states to develop and submit to EPA new NSR regulations for nonattainment areas, as well as attainment areas for states that elect to implement the PSD program. In response

t o NSR Reform and EPA’s reclassification of the Feather River portion of the Sacramento Metro Air Basin to a severe ozone nonattainment area (See 75 FR 24409, May 5, 2010), FRAQMD has submitted Rule 10.1 to fulfill these program requirements. This TSD cont ains EPA’s evaluation

of new Rule 10.1

–

New Source Review

.4

The CAA defines “nonattainment areas” as air quality planning areas that exceed the primary or secondary NAAQS for the given criteria pollutant (or that contribute to ambient air quality in a

near by area that does not meet the NAAQS). FRAQMD consists of both Sutter and Yuba

counties. Rule 10.1 applies to sources located anywhere within the District , but contains separate requirements depending on the location of a project

. Portions of the Distri ct are currently designated as nonattainment for the 8 hour ozone (severe) and PM 2.5 NAAQS

. A small southern section of Sutter County , referred to as the Sacramento Federal Nonattainment Area (SFNA), is designated as severe nonattainment for 8 hour ozone. All of Sutter County and all but the

no rthern most part of Yuba County is designated nonattainment for the 2007 PM 2.5 standard. A NSR rule submittal applicable to PM 2.5 sources must be submitted no later than December 14, 2012; therefore this submittal is not being evaluated for compliance with the NSR program requirements applicable to PM 2.5 sources. FRAQMD does not take any credit in its attainment plans for any emission reductions achieved as part of these NSR regulations.



### Rule Summar y

Rule 10.1 c ontains the substantial requirements of the NSR program and is comprised of nine

sections: Section A

– Purpose , Section B

– Applicability , Section C

– Effective Date , Section D

– Definitions , Section E

– Requirements , Section F

– Calculations, Section G

– Air Quality Impact Analysis, Section H

– Administrative Requirements, and Section I

– Power Plants . Section s A

and B include provisions that outline the purpose and applicability of the rule

. Section D contains

45 definitions . Section E contains the sta ndards that apply to projects that undergo new source review, including Best Available Control Technology (BACT) and emission offset requirements

. Section F contains the calculation methodologies to be used to make various determinations throughout the ru le . Section G contains the requirements for performing an Air Quality Impact Analysis. Section H contains provisions for determining when an application is complete, what is required to make a preliminary decision, what air quality models must be used, p ublic notice requirements, requirements for a final action, and other administrative provisions. Section I contains specific requirements for power plant applications.



### Rule Evaluation

For this Technical Support Document (TSD) , we have reviewed the submittal of Rule 10.1 to

ensure it meet s the requi rements of section 110 and part D of title I of the Act and implementing regulations at 40 CFR 51.160 through 51.16 5 . We also relied on the following materials in our review: General Preamble for the Impl ementation of Title I of the Clean Air Act Amendments of 1990 (see 57 FR 13498, April 16, 1992), EPA’s Emission Offset Interpretive Ruling (40 CFR part 51, Appendix S), and EPA’s policy document entitled, “Improving Air Quality with Economic Incentive Prog rams” that was published in January 2001. EPA has condensed the approval
criteria contained in these various materials in this TSD, which describes reasons for our proposed

action on the Rule 10.1 submittal.

General Nonattainment NSR Requirements5

The Act requires all States with nonattainment areas to submit a NSR program that contains the following nonattainment NSR provisions. To demonstrate that FRAQMD has met each provision, EPA identifies the section(s) of Rule 10.1 , or other rules which sati sfy the listed requirement. Where necessary, a detailed discussion accompanies deficiencies in the rules that have been identified through this review.

1. Provisions to assure that calculation of emissions offsets, as required by section 173(a)(1)(A), a re based on the same emissions baseline used in the demonstration of reasonable further progress.

First we note that the emissions inventories that have been prepared for the Ozone

nonattainment plan and the demonstration of reasonable further progress (RFP) are based on

actual emissions. An attainment plan for PM 2

. 5 is not due until December 14, 2012. For new or modified major sources of VOC, NO x , SO x and PM 2.5 , Rule 10.1 Section E.2.a requires offsets to be provided when emission increases exceed specified thresholds. Rule 10.2

– Emission

Reduction Banking Credits (ERCs) is used to provide emission reductions that satisfy the emission offset requirements. Rule 10.2 requires ERCs to be based on “actual” e mission reductions. Thus, the basis for the demonstration of RFP and the calculation of NSR emissions offsets is the same (i.e., actual emissions).

Second, regarding the amount of offsets that is necessary to show noninterference with RFP, EPA presumes that so long as a new source obtains offsets in an amount equal to or greater than the amount specified in the applicable offset ratio (or, where the statute does not specify an offset ratio, in an amount equal or greater than 1:1), the new source will no t interfere with RFP.

Rule 10.1 Section E.2.e.1 provides the ratios for federal offsets purposes, and is equal to or greater than the applicable offset ratio for the nonattainment pollutants. These offset ratio requirements ensure that the program for permitting of new or modified major sources will not

interfere with RFP.

These provisions satisfy the statutory requirement.

2. Provisions to assure, pursua nt to section 173(c)(1), that any emissions offsets obtained in conjunction with the issuance of a permit to a new or modified source must be enforceable by the time of issuance of the permit, and in effect by the time the new or

modified source commences operation.

Rule 10.1 Section E.2.b requires that all offsets be enforceable and Section E.2.d requires that
all offsets commence prior to initial startup of the new or modified source. These provisions satisfy the statutory requirement.

3. Provisions to assure that emissions increases from new or modified major stationary sources are offset by real reductions in actual emissions as required by section 173(c)(1).

Rule 10.1 Section E.2.b requires that all offsets be real reductions. Section D.35 defines Real as the decrease of actual emissions. These provisions ensure that emissions increases from6 new or modified major stationary sources are offset by real reductions in actual emissions as required by section 173(c)(1).

4. Provisions, pursuant to section 173(c)(2), to prevent emissions reductions otherwise required by the Act from being credited for purposes of satisfying the part D offset requirements.

Rule 10.1 Section E.2.b requires that all offsets for be surplus when the reductions are

sur rendered to the District. Section D.43 defines s urplus as reductions that are not otherwise required by federal, state or local law and not relied upon to meet any SIP requirement. These provisions prevent emissions reductions otherwise required by the A ct from being credited for purposes of satisfying the part D offset requirements as required by section 173(c)( 2 ).

5. Provisions, pursuant to section 173(a)(5), that, as a prerequisite to issuing any part D permit, require an analysis of alternative sit es, sizes, production processes, and environmental control techniques for proposed sources that demonstrates that the benefits of the proposed source significantly outweigh the environmental and social costs imposed as a result of its location, constructio n, or modification.

Rule 10.1 Section E.7 requires an applicant for a major source or major modification to prepare such an analysis consistent with the requirements of CAA section 173(a)(5) , by requiring the applica nt to prepare an analysis functionally equivalent to the requirements of Division 13 of the Public Resources Code (CEQA). This section also requires the District to make the necessary findings prior to issuance of an Authority to Construct . This provision satisfies the s ection 173(a)(5) requirement.

6. Definition of “stationary source” that certain internal combustion engines must be subject to control under State programs (i.e., those not used for transportation purposes), but excluding the category of “nonroad engines .” [See section 302(z) of the
Act.]

SIP approved Rule 4.3

– Exemptions from Permit

, provides exemption s from permitting requirements for various types of emission units. Section s (a) and (b) provide broad exemptions for vehicles as defined by the state v ehicle code and vehicles used to transport passengers or freight

. This current SIP exemption meet s the requirements of requirement s of Section 302(z) of the Act.

7. Provisions, pursuant to section 173(a)(3), to assure that owners or operators of each

pro posed new or modified major stationary source demonstrate that all other major stationary sources under the same ownership in the State are in compliance with the

Act.

Rule 10.1 Section E

. 5 requires an applicant for a major source or major modification to submit a certification that all existing major sources owned by the applicant in California which are subject to emission limitations are in compliance or on an expeditious schedule for com pliance, with all7 applicable emissions limitations and standards. This provision satisfies the section 173(a)( 3 ) requirement.

8 a

. Definitions which contain language which is either identical or equivalent to that found in CAA Section 171, 40 CFR 51.100, and 51.165(a)(1).

In most cases, the definitions in Section D are either identical or equivalent to EPA’s language in the CAA and/or CFR. In some instances, the definitions do not match the federal definitions as closely, but we have determined that they satisfy the federal criteria. These specific definitions

are discussed below. All section references are to 40 CFR Part 51, unless otherwise noted. Also see Section 8.b. below for a discussion of specific definitions affected by implementation of the NSR Reform requirements, and see Section 8c below for a discuss ion of the deficiencies pertaining to the required definitions.

Actual Emissions Rule 10.1 does not provide a definition for this term. Instead the rule provides a definition for the term “Historic Potential Emissions,” which is sufficiently similar and serves the same purpose as the term “Actual Emissions.” Therefore this is an acceptable substitution.

Allowable Emissions Rule 10.1 does not provide a definition for this term. Instead the rule provides a definition for the term “Historic Potential Emissions,” which when read with the definition of “Potential to Emit” is sufficiently similar to and serves the same purpose as

, the section 165 definition for this term, in that only emissions allowed by the legally and practically enforceable permit may be counted.

Construction Rule 10.1 does not provide a definition for this term, but EPA believes the common usage

definition of this term is adequate for the purposes of determining the requirements of Rule 10.1.

Emissions Unit (EU) The section 165(a)(1)(vii) definition of this term includes three elements: 1) what generally constitutes an EU, 2) what constitutes a “New EU” and 3) what constitutes an “Existing EU.”

The Rule 10.1 definition of EU only covers what generally constitutes an EU, and does not differentiate between new and existing EUs. Because Rule 10.1 does not differentiate in its treatment of old and new EU’s, it is not necessary to provide separate definitions to clarify these distinctions. The Rule 10.1 definition of Emission unit is adequate and consistent with the section 165 definition for the purposes of this rule.

Lowest A chievable E

mission R ate (LAER)
Rule 10.1 does not provide a definition for this term. Instead the rule provides a definition for the term “Best Available Control Technology (BACT),” which incorporates the definition of LAER, in that it specifies that BACT is the most stringent o f either 1) applied in practice technology (LAER standard) or 2) technology that is technically feasible and cost

- effective (BACT standard). This is an acceptable substitution.

Major Modification8 Section 165 (a)(1)(v) defines a major modification as a physical change in or change in the method of operation of a major stationary source that would result in both a significant emission increase and a significant net emissions increase for a regulated NSR pollutant. The definition of “significant,” which p rovides specific thresholds for each pollutant, is provided in section 165 (a)(1)(x). Rule 10.1 defines the term “major modification” in section D.21 as a modification, as defined in section D.22, at a major source that results in a net increase in the PT E greater than 25 tpy for NOx or VOCs. The definition of the term “modification” in Section D.22 is sufficiently similar to the section 165language used to describe the physical changes or changes in the method of operation as the term “major modification

, ” including a list of excluded activities. The “major” aspect of the section 165 definition is covered by the requirement that the source must already be a major source for the non

- attainment pollutant and the 25 tpy threshold is the significant threshol d for the only nonattainment pollutants in the District. We note that this definition does not require the project to also result in a significant net emissions increase, but believe this difference is acceptable because it is more stringent than the 51.1 65 requirements that a project must result in both . See also the discussion in the section entitled “NSR
Reforms”.

Major Stationary Source
The Rule 10.1 definition for this term is consistent with the 51.165 definition as it applies to

severe 8

- hr ozone non

- attainment areas. While not defined exactly the same as in section 165,

this definition appropriately limit s applicability to the applicable nona ttainment pollutants and

include s the appropriate major source emission thresholds. Therefore this definition is acceptable.

Net Emission Increase
Rule 10.1 does include this term because sources are not allowed to perform a net emissions

increase anal ysis to determine whether a project will result in a major modification. Instead, only a significant emissions test is used. Since Rule 10.1 does not use this test, it is not necessary to define this term.

Project Rule 10.1 does not provide a definition for this term, but EPA believes the common usage definition of this term is adequate for the purposes of determining the requirements of Rule 10.1.

Regulated NSR P ollutant
Rule 10.1 does not provide a definition for this term, but instead uses the term “ Affected

Pollutant ” and defines it as any pollutant or precursor for which a NAAQS or SAAQS has been established. This definition is sufficiently similar to and serves the same purpo se as, the section
165 definition for this term. Therefore this definition is a cceptable.

Secondary Emissions
Rule 10.1 does not provide a definition for this term. The only place in section 165 that this term

is used is within the definition of Poten tial to Emit (PTE), to clarify that secondary emissions are not included when calculating PTE. Since Rule 10.1 does not use this term, it is not necessary
to define it.9 Temporary clean coal technology demonstration project, Clean coal technology, and

C lean coal technology demonstration project
The above terms related to coal

- fired facilities are not included in Rule 10.1. These terms are only used in section 165 within the definition of Major Modification, where it states that the installation of such projects does not constitute a major modification. Rule 10.1 does not

include such an exclusion from its definition of the term modification, thus there is no need to

define these terms in Rule 10.1.

Volatile organic compounds (VOC)
Rule 10.1 provide s a definition for the term “Reactive Organic Gases ” which is consistent with the federal definition provided in 40 CFR 51.100 (s) for this term.

8b. Definitions which contain language which are not either identical or equivalent to that found in 51.165(a)(1), related to implementation of the NSR Reform requirements.

This section discusses the specific definitions affected by the Districts exclusion of the NSR Reform requirements. Please see the section of this TSD entitled “New Source Review Reforms” for a discussion of why we believe it is acceptable to approve Rule 10.1 without the inclusion of the following NSR related ter ms or terms that match the section 165 definitions for

these terms: Baseline actual emissions, Electric utility steam generating unit, Emission unit

, Net

emission increase , Projected actual emissions, Significant, Significant emissions increase, and Signif icant net emissions increase.

8.c Definitions which EPA has determined are deficient, in that they are not either identical or equivalent to that found in CAA Section 171, 40 CFR 51.100, and 51.165(a)(1).

The absence of these definitions has been noted i n the Federal Register notice proposing action on this submittal, as a requirement that must be added or addressed for full approval.

Commence, Begin actual construction and Necessary preconstruction approvals or permits
Rule 10.1 does not define or use any of these interrelated terms. The term Commence is key to correctly applying the provisions of 51.165(a)(5)(ii). (See item 13) Since we identified the lack of this provision as a deficiency, when the District adds such a provision to correct the defi ciency,
it will also need to add definitions for each of these terms.

9. Provisions, pursuant to 40 CFR 51.161 that require opportunity for public comment, as well as the consideration of any comments received during this period in the final permit determination. These provisions must also ensure the availability of all information relevant to the proposed permit during the comment period, and allow for a public hearing upon request.

Sections H.3 , Publication and Public Comment, and H.4 , Public Ins pection, ensure that the requirements of 40 CFR 51.161 are met. These sections require the District to provide a 30 day public notice for each proposed permit and an opportunity to request a public hearing, and make available for inspection all related ma terials.10

10. For districts which have submitted a minor source NSR permitting program: provisions, pursuant to 40 CFR 51, sections 160 through 164, which contain substantive requirements for minor sources. These requirements include public notice, opp ortunity for

– and consideration of

– public comment, and the demonstration that a minor source will not contribute to a violation of any national standard or the area control strategy for attainment.

As noted above, the provisions of Sections H.3 and H.4 ens ure the public notice provisions of 161 are met for all sources required to provide offsets pursuant to Section E.2

– Offset Requirements. Thus public notice requirements apply to any source with a PTE of more than 10 tpy of VOC or NO x , and 2 5 tpy of PM 10 or SO X . T hese thresholds are below the 25 tpy major

source threshold for VOC and NOx and the 100 tpy major source threshold for PM 10 or SO x

. In addition, Section G. requires that all projects be evaluated to ensure they will not prevent or interfere with the attainment or maintenance of any applicable air quality standard, including minor source projects.

11. Provisions, pursuant to 40 CFR 51.118(a), to assure that the degree of emission limitation required of any source for control of any air pollutant must not be affected by so much of any source's stack height that exceeds good engineering practice.

Section G.3 , Air Quality Impact Analysis , states that for “... an impact analysis, if the proposed stack height is higher than is dictated by good engineering practices, the actual height used for the purposes of modeling shall be calculated in accordance with good engineering practice s .” This provision satisfies the r egulatory requirement.

12. Provisions, pursuant to 40 CFR 51.165(a)(3)(ii)(C), which limit “prior shutdown” emission reduction credits (ERCs), i.e., ERCs that are generated by facilities that have already ceased operation. While these credits can be allo wed, the regulations prohibit such credits in two cases: (1) if the attainment plan has been disapproved, or, (2) if an attainment plan or other part D required submission is delinquent.

At present, FRAQMD has submitted all plan revisions currently requir ed under part D of title I of the Act, and all of these plan revisions have been found to be complete (or have been deemed complete by operation of law). Therefore credit for prior shutdown is allowed so long as the other requirements in 40 CFR 51.165(a)(3 )(ii)(C) are met. Rule 10.2

– Emission Reduction Banking Credits (ERCs) requires ERCs to be based on actual emission reductions and that such reductions, including those from source shutdowns, meet the basic requirements of being surplus, permanent, quantifiable, and federally enforceable. In addition, S ection E.2 of Rule

10. 1 requires that all e mission reductions , including those from shutdown operations , to be surplus to any reductions in the District’s attainment plan. Thus, credit for prior shutdowns

under Rule 10.1 is acceptable.

13. Provisions, pursuant to 40 CFR 51.16 5(a)(5)(ii), which require new source review for a source or modification which becomes major due to a relaxation in a11 federally

- enforceable limit. Such sources and modifications are subject to new source review “as though construction had not yet commenc ed.”

Rule 10.1 does not contain such a provision. This omission is a deficiency. To correct this deficiency, the District must submit a revised version of Rule 10.1 for SIP approval that contains such a provision. In addition, the District will need to include new definitions for the terms “Commence,” “Begin actual construction” and “ Necessary preconstruction approvals or permits” which are embedded within this provision.

14. Provisions, pursuant to 40 CFR 51.307(b)(2), which identifies additional requirements for NSR for any new major source or major modification, proposing to locate in a nonattainment area, that may have an impact on visibility in any mandatory Class I

Federal Area.

Rule 10.1 does not contain such a provision. However a Federal Implementation Plan, pursuant to 40 CFR 52.281(d) already ensures this provision is applicable for all new and modified major sources. For clarity, EPA recommends that the District provide language in Rule 502 to identify the necessary additional requirem ents pursuant to 40 CFR 51.307(b)(2).

15. Provisions, pursuant to 40 CFR 51.165(a)(1)(iv)(C), which require that fugitive emissions be included in the major source applicability determination if the source belongs to one of the source categories listed in this section. Otherwise, fugitives may be excluded from the applicability determination.

The definition s of “ major stationary source ” in S ection D.20 states that fugitive emission s must
be counted when determining if a source is a major stationary source if the source belongs to one of the categories of stationary sources included in 40 CFR 51.165(a)(1)(iv)(C). This provision satisfies the statutory requirement.

16. Provisions, pursuant to section 173(a)(2), which require LAER, for a major source or major modification.

Section D.5 defines BACT as the most stringent of several options. Section D.5.1 requires the most stringent emission limit or control technique which has been used for the specific type of equip ment. This is consistent with the definition of LAER as defined in 40 CFR 51.165 (a)(1)(xiii). Section E.1 requires any new or modified stationary source with an emission increase and a potential to emit for the project above specified thresholds (all of which are below the NSR significance levels for the same pollutants) to apply BACT. These provisions satisfy the statutory requirement.



### New Source Review Reforms

California Clean Air Act

– New Source Review Program The air quality in California has hi storically been some of the worst in the nation. In light of this fact, California has always been at the forefront in implementing strict air quality regulations to12

address the state’s serious air quality problems.

In 1959, the State passed its first air quality standards for total suspended particulates, photochemical oxidants, sulfur dioxide, nitrogen dioxide, and carbon monoxide. These state standards were amended in 1969 by the Air Resources Board. At that time, the California ambient air quality standard for ozone was lower than the federal standard, thus most of California was exceeding the state standard for Ozone. As a result, most California Air Pollution control agencies had developed permitting programs that contained non

- attainment new so urce review requirements such as Lowest Achievable Emissions Rate (LAER) and offsets.

In 1988, California adopted the California Clean Air Act of 1988 (California CAA). This legislation established new preconstruction review requirements for new and modified sources. It established uniform emission thresholds that trigger control and offset requirements for ozone (VOC and NO

x ), carbon monoxide (CO), sulfur dioxide (SO 2 ) and nitrogen dioxide (NO 2 ) at levels significantly lower than the federal thresho lds in effect at the time of adoption. These thresholds are even lower than the thresholds established two years later by the federal Clean Air Act Amendments of 1990 (federal CAA).

Under both state and federal requirements, all ozone nonattainment are as were classified according to the severity of the ozone violations measured for each area. Instead of a single major source threshold for all areas, the federal CAA set new major source and major modification thresholds of 100 and 40 tons per year (tpy) respectively, for areas classified as moderate or marginal; 50 and 25 tpy respectively, for areas classified as serious; 25 and 25 tpy respectively, for areas classified as severe; and 10 and 0 tpy respectively, for areas classified as extreme. These

thr esholds are used to determine when a proposed project requires the application of LAER and

emission offsets.

In comparison, the California CAA set thresholds for when project emissions trigger the application of California’s version of Best Available Co ntrol Technology (CA BACT) and offsets. (Note that CA BACT is defined in such a manner as to be equivalent to federal LAER requirements.) The application of CA BACT is triggered for emission increases of 25 lb/day in

areas classified as moderate and 10 l bs/day in areas classified as serious, severe or extreme. In addition, some California Districts have adopted even lower CA BACT thresholds of two and zero lb/day. The requirement to provide offsets is triggered for all emission increases, once a facilit y’s emissions exceed 25 tpy in areas classified as moderate; 15 tpy in areas classified as serious; and 10 tpy in areas classified as severe or extreme.



### California and Federal BACT/LAER and Offset Thresholds for 1

- hr Ozone

CA Ozone Classification
(ppm ) Marginal Moderate

(0.09

- ≤0.12) Serious

(0.13

- ≤0.15) Severe

(0.16

- ≤0.20) Extreme

(>0.20)

CA BACT 1 (tpy) [lb/day] NA 4.6 [25] 1.8 [10] 1.8 [10] 1.8 [10]

CA Offset 1 (tpy) NA 25 15 10 10

EPA Ozone Classification
(ppm) Marginal

(0.121

- <0.138) Moderate

(0.138

- ≤0.160) Serious

(0.160

- ≤0.180) Severe

(0.180

- ≤0.280) Extreme

(>0.28)

1 California Health & Safety Code §§ 40918, 40919, 40920 and 40920.513

Federal Major Source (tpy)
(Triggers both LAER & Offsets) 100 100 50 25 10

Federal Major Mods (tpy)
(Triggers both LAER & Offsets) 40 40 25 25 0

Note: California design values are lower than federal values for the same classification.

NSR Reform Program Requirements On December 30, 2002, EPA published a final rulemaking action to provide additional flexibility in the permitting of modified sources subje ct to the federal major source NSR and PSD programs. EPA’s intent was to allow existing sources additional flexibility in the NSR/PSD permitting process that would encourage facilities to make process improvements or undertake energy efficiency projects t hat would provide additional environmental benefits by reducing emissions on a capacity basis. In 2005, a court vacated two key NSR Reform provisions 2 , but also upheld the three key remaining provisions. These provisions all pertain to how emission incre ases from proposed modifications of existing sources are calculated.

One provision allows an existing facility to set a Plantwide Applicability Limit (PAL), which in effect is a facility

- wide emissions cap for a specific pollutant. Once the PAL is dete rmined, a facility can make any physical modification or change in the method of operation, which might otherwise trigger a major modification, without obtaining a NSR permit, as long as the plantwide emissions remain below the PAL level. For certain type s of industries that need significant operational flexibility to make quick changes in response to changing market conditions, the ability to make changes without having to wait for the issuance of construction permits is worth the

additional work to ensur e emissions from all operations remain below the PAL and maintain the additional records needed to verify compliance with the plant

- wide emission limits.

Another provision changed the allowable time frame to be used to determine baseline actual emissions. Baseline emissions are generally considered to be the pre

- project emissions from the facility or emission units proposed to be modified. Prior to implem enting the NSR Reforms, EPA required a source to use the actual emissions emitted during the two year period immediately preceding the application date for the new project. Sources were allowed to use a different two year period within the five year perio d immediately preceding the application date if they could demonstrate that the alternative two year period was more representative of normal operations. The NSR Reforms revised the allowable time frame to be any 24 month period during the 10 year period immediately preceding the application date. EPA believes that the use of a 10 year period allows a source to look back to a period from a more representative business cycle, i.e., 10 years vs. five years, and that significant resources are conserved by al lowing the source to choose the 24 month period used to establish baseline actual emissions, rather than spend time and resources determining what period most represents “normal operations.” While going back further in time means a source may be able to c hoose a period with higher average emissions, the NSR Reforms also added requirements to ensure the baseline period is adjusted for any excess emissions or any additional emission reductions required by new regulations which have become effective since the baseline period.

2 The United States Court of Appeals for the District of Columbia Circuit in State of New York, et al., v. U.S. Environmental Protection Agency, et al., 413 F.3d 3 (D.C. Cir. 2005)14

The third provision upheld by the court changed how post

- project emissions are determined. Prior to implementing the NSR Reforms, EPA required a source to use the worst case potential to emit (PTE) assumptions (i.e., operating at 100% capacity, 24 hrs/day, 7 days a week), unless the applicant agreed to practically enforceable permit conditions to limit operation of the emission unit (i.e. fuel usage limits or limits on hours of operation). In this “actual to potential” test, often the difference between the baseline actual emissions and the PTE of an operation would be greater than the major modification significance thresholds. As a result, many modifications were treated as major modifications, even when the actual emissions would d ecrease, not change, or the actual increase in emissions would not be significant. The NSR Reforms also changed the post

- project emission calculation methodology to allow a source to use the highest actual emission rate projected to occur over the next 5 or 10 years and to subtract emissions the emission units could have accommodated prior to the project, that were unrelated to the project, in order to determine the emission increase from the proposed project.

It is important to note that none of these r evisions changed the major modification significance thresholds for triggering control technology and offset requirements. They only changed the calculation to determine if the major modification threshold is triggered.

Impacts of Federal NSR Reforms o n California NSR Permitting Programs By not adopting the NSR Reforms, the NSR program in California Districts would not include the three program elements described earlier: use of PALs, a 10 year look back period for baseline actual emissions and projecte d actual emissions. The use of two of these three provisions (baseline actual emissions and projected actual emissions) is required under 40 CFR 51.165(a)(2). The requirement to adopt a NSR program that allows the use of PALs is found in 40 CFR 51.165 (f ).

Section 116 of the CAA 3 provides that nothing in the Act shall preclude the rights of States to adopt air pollution regulations that are more stringent than those contained in the CAA or implementing regulations. As noted above, the California CAA of 1988 adopted lower emission thresholds for triggering emission control (BACT/LAER) and offset requirements for new and modified sources as part of its NSR program. Consistent with this concept, when EPA adopted new calculation methods to implement the NSR reforms in 40 CFR 51.165 (a)(2), we also stated that each plan must use the specific applicability provisions specified unless the State specifically demonstrates that the submitted plan provisions “are more stringent than or at least as stringent” in

all respects as the specified paragraphs. These applicability provisions specify the use of baseline actual emissions and projected actual emissions, two of the new NSR Reform provisions, but also retain the option for a source to use the actual to potential emission test.

3 Section 116: of the CAA: Except as otherwise provided in sections 119 (c), (e), and (f) (as in effect before the date of the enactment of the Clean Air Act Amendments of 1977), 209, 211(c)(4), and 233 (preempting certain State regulation of moving sources) nothing in this Act shall preclude or deny the right of any State or poli tical subdivision thereof to adopt or enforce (1) any standard or limitation respecting emissions of air pollutants or (2) any requirement respecting control or abatement of air pollution; except that if an emission standard or limitation is in effect unde r an applicable implementation plan or under section 111 or 112, such State or political subdivision may not adopt or enforce any emission standard or limitation which is less stringent than the standard or limitation under such plan or

section.15

Several air districts in California have argued that their NSR permit programs are inherently more stringent than the required federal program because the applicability thresholds to apply CA BACT and offsets are significantly lower than those in the federal CAA. In addition, for modifications, a source does not need to be a major source, as it does for federal purposes, before these lower applicability thresholds apply to a proposed project. The Districts also point out that

if a Distr ict adopted the NSR Reform calculation methods, and a project using these methods was not classified as a major modification, it would not be subject to Federal LAER and offsets requirements; but the project would still have to apply CA BACT and provide of fsets in accordance with the CA CAA requirements. These lower state emission thresholds are already in almost all Districts’ portion of the California SIP, making these requirements enforceable under

both state and federal law.

As a result, CA District s have argued that the regulatory framework found in other states, where adopting the NSR Reforms provide additional permitting flexibility and environmental benefits, do not exist in California because adoption of the reform requirements would have no eff ect on the application of control technology or offset requirements. This claim is based on the more aggressive CA CAA program requirements not only for new and modified sources, but existing sources as well. For example, whereas the federal CAA requires States to apply at least Reasonably Available Control Technology (RACT) for all major source categories located in a nonattainment area, the CA CAA requires the application of Best Available Retrofit Control Technology (BARCT ) 4 5 for all source categories where it is economically feasible to do so. Thus even if an existing source is not proposing any physical or operational modifications, it must still reduce emissions periodically as part of an area’s attainment plan by applying stringent control

technolo gies. The Districts contend that this requirement leaves little room for additional voluntary emission reduction projects and eliminates any practical benefits of obtaining a PAL.

EPA has reviewed the Districts’ claims and considered how the CA CAA pro visions affect the effectiveness of the NSR Reforms to provide the intended regulatory relief, and we agree that the application of CA BACT and offsets at significantly lower thresholds means that the federal NSR Reform provisions do not provide any of EPA ’s intended additional flexibility to proposed projects that may otherwise trigger federal major modification requirements. If the State adopts these provisions, a new project will have to complete two different sets of emission calculations;

and even if the federal requirements are not applicable, the source will still have to comply with the CA BACT control and offset requirements if they are triggered. In light of these facts, EPA is proposing to find that it is acceptable for FRAQMD to not incorporate the NSR Reform provisions into their SIP approved NSR programs, since the same level of control will be required for modified sources, with or without inclusion of these provisions in the SIP, and their programs will not be any less stringent than the fed eral program.

4 BARCT mu st meet the same evaluation criteria as BACT, except as it applies to existing, rather than new or

modified sources.

5 California Health and Safety Code Section 41010(b) and California Code of Regulations Title 17, Division 3, Chapter 1.5, Article 6, Secti on 7060116



### Section 110( l ) of the Act

Section 110(l) of the Act prohibits EPA from approving any revision of a SIP if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress, or any other applicable requirement of the Act. In nonattai nment areas we may approve SIP relaxations so long as they would not interfere with any applicable requirement concerning attainment and reasonable further progress, or any other applicable requirement of the Act. The requirements contained in the new rul e submittal were compared with the contents and requirements of the existing SIP rules to evaluate compliance with the 110(l) requirements.

Rule 10.1 is a new SIP submittal for both counties under the jurisdiction of the FRAQMD.

Neither Rule 10.1 or an y earlier version of this rule has been approved into the SIP and we are proposing to find that the submittal meets the section 110(a)(2)(C) and part D of title I of the Act. Therefore approval of this rule into the SIP will represent a strengthening of t he SIP.



### Section 193 of the Act
Section 193 of the Act, which was added by the Clean Air Act Amendments of 1990, includes a savings clause which provides, in pertinent part: “ No control requirement in effect, or required to be adopted by an order, settlement agreement, or plan in effect before November 15, 1990, in any area which is a nonattainment area for any air pollutant may be modified after November 15, 1990, in any manner unless the modification insures equivalent or greater emission reductio ns of such air pollutant. ” Rule 10.1 , nor any earlier version of this rule was approved into the SIP as of the November 15, 1990 applicability date of Section 193; therefore this provision does not apply to this rulemaking action.



### Recommendations
Pursuant to section 110(k)(3) of the Act, we recommend a limited approval / limited disapproval of the submitted NSR rule. We recommend limited approval based on our determination that the rule complies with applicable statutory and regulatory provisions requiring regulation of stationary sources in general and requiring permit programs for major stationary sources in particular, including section 110(a)(2)(C) and part D of title I of the Act. In support of this recommendation,

we have concluded that our approval of Rule 10.1, complies with sections 110(l) and 193 of the Act because the new rule does not replace any existing SIP approved rules and therefore these provisions are not applicable to this evaluation. We recommend limited disapproval to correct the deficiencies listed below. If we finalize this action as proposed, our action would be codified through revisions to 40 CFR 52.220 (identification of plan).

1. Add definitions for the terms “commence,” “begin actual construction,” and “necessary

precons truction approvals or permits.” (See item 8c and 13)

2. Add a provision, pursuant to 40 CFR 51.165(a)(5)(ii), which requires new source review for a source or modification which becomes major due to a relaxation in a federally

- enforceable limit. Such source s and modifications shall be subject to new source review “as though construction had not yet commenced.” (See item 13)17



### Attachments

1. FRAQMD Submitted Rule 10.1, New Source Review (NSR), adopted October 5, 2009.

2. EPA’s reclassification of the Feather River portion of the Sacramento Metro Air Basin, (75 FR 24409, May 5, 2010).